Wednesday, March 23, 2011

In India Post Office is selling gold coins like hotcakes

From the humble post office to the bank, Indian consumers are lining up to buy gold. While coins are a current favourite to give-away during festivities, investors fearing the worst are hoarding gold bars

Author: Shivom Seth

MUMBAI -

The humble post office is the latest organisation to get into the gold act in India. Standard 24 carat gold coins have been selling like hotcakes at over 466 post offices dotted throughout the country.

Despite the current high price, Indian consumers have been buying small quantities of coins to give as gifts during the festival season. With the spring, harvesting and wedding season all in full swing in India, demand for the yellow metal has shown a substantial climb.

The gold coins are manufactured by Valcambi in Switzerland. ``Apart from enhancing the revenue of the postal department and services, the move has enabled us to usher in a new image of the India Post as a modern and relevant organisation. Gold coins are showing to have an immense pull-factor with the younger generation,'' said a postal official, requesting anonymity.

Keeping in mind the excitement that has been generated and the great sales, the Indian government has extended its novel scheme to sell gold coins through almost all the post offices in various states across the country.

The Department of Posts introduced the project through select post offices in October 2008. At that time, demand was slow but slowly the idea appears to have caught on.

In the first phase of the project, gold coins in the denomination of half gram, one gram, 5 grams and 8 grams were sold in over 100 post offices in Delhi, Tamil Nadu, Maharashtra and Gujarat. The initiative was then introduced in Punjab, Andhra Pradesh and Rajasthan.

The postal department had also entered into a tie-up with Reliance Money to sell gold coins at discounted prices. The discount offers have been encouraging people to buy more of the precious metal.

``The move ensures pure gold and makes it available to a larger set of consumers, in lower denominations, at a convenient price point. It can also be sold in what were earlier considered remote locations. All of this boosts the demand for gold significantly,'' said V Gurnani, director of Reliance Money, which has teamed up for the venture.

Moreover, with the India Post offering 5% discount to its customers during the festive season, the move has prompted a large number of customers and small investors to queue up to get gold coins.

Post offices have also been selling gold at a 5%-7% cheaper rate than banks such as ICICI Bank, Axis and HDFC Bank, all of which has helped the growth momentum.

Indians consider it auspicious to buy gold during the festive season, and especially when the goddess of wealth, Lakshmi, is worshipped.

Given the huge demand from its customers, the government has taken the initiative to keep post offices open on most festival days to sell gold coins to interested customers.

Banking initiative

It is not just India's gold merchants in the post offices that have been expecting a sustained pick-up in sales during festival times. The banking sector too has seen a renewed demand.

``There are several factors that aid sentiment - a reviving economy, prosperity and higher savings are changing the way Indians perceive gold,'' said Shreevardan Shetty, a senior official in a prominent gold importing bank.

He added that the investment demand was more a function of disposable income as the overall savings of the country has seen an increase.

On Friday, both the precious metals, gold and silver, recovered sharply on the bullion market buoyed by a firm global trend. Trading sentiments have turned bullish for the yellow metal after it advanced in the global markets, triggered by the unrest in Middle East and Japan's nuclear crisis. All these developments have boosted demand for the precious metals as an alternate investment.

Banks have been reporting good sales despite high gold prices and mainly due to the geopolitical situation and a weakening dollar. Inquiries at banks reveal that there is a growing demand for gold bars - from 1gm to 117 gm, with the bullion continuing to be a safe haven for many discerning investors.

``While there are a lot of buyers for finished jewellery, there is clearly a renewed interest in gold coins and gold bars,'' another banker said.

Several Indian banks offer term deposits banked by deposited gold in amounts as small as 500 grams. Banks also offer loans for purchasing gold jewellery. These loans are generally targeted at the working woman between 18 and 55 years of age.

Bankers said many speculators have been creating fresh positions on the back of a firming global trend. They added that trading sentiment climbed even as allied aircraft began to enforce a no-fly zone over Libya.

``Investors' taste buds for precious metals, especially gold, have been whetted because the value of these metals has increased substantially over the years and especially during political turmoil. The political conditions across the world and the Libyan crisis are all set to hike prices further,'' said another banker.

He added that several investors have been buying gold and other precious metals as a hedge against inflation, market uncertainties, and the fear of a stock market crash.